Tanzania To Establish 6 New Companies For Power Generation And Transmission

December 10, 2015

The Tanzanian Government has recently announced that six private companies will replace the current state-owned Tanzania Electric Supply Company (TANESCO) in power generation and transmission by 2022, to reduce the financeable risk in power purchase agreements and improve tariffs’ structures.

The six companies would be established in Tanzania’s Eastern, Northeastern, Northwestern, Central, Southeastern, and South Highland regions to strategically deliver electricity across the country and support development objectives.

The transition process from the current integrated model with one parastatal organization alone, to six private companies is part of the electricity generation sub sector unbundling process, which aims at separating the power transmission and distribution segments to ensure competition and cost efficiency.

It is in line with the Electricity Supply Industry Reform Strategy and Roadmap 2014 – 2025 (The Roadmap) published by the Tanzanian Ministry of Energy and Minerals (MEM), which seeks to get involved the private sector with electricity generation by improving TANESCO’s operational and financial situation to strengthen governance and performance in the energy sector.

With the transition process, Tanzania expects to increase its installed power capacity from the current 1,583 MW to 10,000 MW by 2025 at a total investment of USD 11.4 billion with equal installments of USD 1.9 billion per annum.

However, such investment cannot be solely raised by the government and TANESCO’s financial structure is currently being assessed to establish a payments’ plan and payoff its total debts by 2021, when the unbundling process is expected to be completed, explained TANESCO’s Commissioner of Energy and Petroleum Affairs, Mr. Hosea Mbise.

The African Development Bank (AfDB) can finance TANESCO as well as act as a guarantee to help it to borrow from other banks for further developments in electricity generation and distribution once the unbundling process is completed and it shows financial viability, explained AfDB Chief Country Economist Chidozie Emenuga.

TANESCO is already taking measures to reach financial stability and by raising its tariffs in 39.92% to be in line with East Africa’s average electricity cost, improving debt collection and prepaid revenue collection, it expects to fix its indebtedness ratio and payoff its creditors in the short term.

With a better financial performance and more competitive electricity distribution, a decrease in Tanzania’s average electricity tariff will be achieve in the domestic sector from USD 0.14 per kW-h to USD 0.09 per kW-h towards 2022 according to the AfDB.

Regarding the industrial sector, it will also see a reduction in the average electricity tariff from USD 0.21 per kW-h to USD 0.12 per kW-h in the same period.

Finally, it will support an increase in Tanzania’s GDP growth from the current 6.8% per annum to 10.0% per annum in 2022 says the AfDB.